Financial Experts: U.S.-EU Convergence Top Priority

Washington (June 24, 2004) -- Convergence in accounting standards between the U.S. and the European Union is the most important issue facing capital markets in both regions, according to financial experts who recently testified before a House panel.

During a hearing before the House Financial Services subcommittee on domestic and international monetary policy, trade and technology, issues discussed included market integration, regulatory interaction between the two regions, interaction between the U.S. Congress and European parliaments, and other securities market-related topics. But convergence in international accounting standards and surrounding issues were the most pressing topics.

“Differences in philosophy regarding the role of government in the private markets as well as different policy priorities can create tensions and can increase compliance costs for financial firms,” Rep. Michael Oxley, R-Ohio, chairman of the House Committee on Financial Services, said in his opening address. “My conclusion is that the regulatory dialogue between the U.S. and the EU actually takes many forms and regulators on both sides of the Atlantic are being creative in finding ways to work together. We must work more closely together.”

In his testimony, Hal Scott, professor of international financial systems at Harvard Law School, one of three experts who addressed the panel, said the most "noteworthy shortcoming" of the dialogue between U.S. and EU regulators is the failure to resolve accounting equivalency issues, which he noted could become a problem in 2005 when the EU adopts international accounting standards.

Under Securities and Exchange Commission regulations, foreign firms may only issue securities or list on U.S. exchanges if they conform to U.S. generally accepted accounting principles. Opponents have said that U.S. GAAP does a better job of protecting investors, but that argument has lost much of its credibility in the wake of the spate of domestic accounting scandals. “There is no evidence that U.S. GAAP is a better accounting standard than IAS,” Scott said.

Paul Oldshue, who represented the Bankers' Association for Finance and Trade, said the group generally supports the efforts to unify accounting standards, but called for the process to be more transparent. “I think it’s safe to say that many American bankers really don’t know much about the [U.S.-EU financial markets] dialogue, including what’s being discussed and who’s discussing it,” Oldshue said. “It would be a big improvement if the U.S. participants made a greater effort to consult with U.S. banks, securities firms and other financial firms early in the process and on an on-going basis.”

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